Price hikes push up outlays on health, electricity, transport and education

Jon Bon Jovi knew what he was doing last June when he cut the price of tickets for the concert his band gave in Madrid by practically half of what had been charged in other European cities. He needed to do so to fill the venue: he was playing in a country where consumers have cut their spending on leisure activities by 10 percent in 2012 alone; a country where car manufacturers are finding it difficult to sell their vehicles despite the government having renewed a direct subsidy program to underpin the market, and also one where Spain’s pioneering low-cost fashion retail chain, Zara, has seen its sales fall.

With the government embarked on a draconian austerity drive to rein in the fiscal deficit that has seen pensions frozen, the wages of public sector workers slashed and tax hikes — alongside rampant unemployment at over 27 percent — households last year further tightened their belts, with average spending falling 3.4 percent.

Since the current crisis broke in 2008, spending has declined by 12 percent as households opted not to trade in the family car, eschewed renewing their wardrobes and went out a lot less in order to make ends meet.

At the same time, the country is in a situation in which the prices of regulated utilities such as gas and electricity have increased, while the costs of education and public transport have also risen. Outlays on using the subway system, for example, have risen 31 percent in five years.

The average household budget has fallen by 3,800 euros in five years

The crisis has brought about a shift in the pattern of household spending. The only items families spent more on last year were education (7.4 percent) and health (0.3 percent). This reflects the withdrawal of grants to buy school books and rises in the cost of medicines and university tuition fees.

The biggest falls in spending were in clothing and footwear (9.3 percent), leisure activities (9.8 percent) and household equipment (9.3 percent), according to figures from the Household Budget Survey for 2012, released earlier this week by the National Statistics Institute (INE).

The bad news for the domestic economy is that the few areas where spending has increased have been in essential items as a result of price rises. This in turn has left less money over to spend on other things. As a result, the average household budget has fallen by 3,800 euros to 28,000 in the past five years.

The drop in consumer spending is a major factor behind the fact that Spain remains gripped in its second recession in barely four years, and its longest one since democracy was restored after the death of Francisco Franco.

According to estimates also released earlier this week by the Bank of Spain, private consumption declined by 0.4 percent in the second quarter of this year from the previous three months when the contraction was of the same magnitude.

The impact of the higher tax burden is also evident. Since the crisis emerged, fees charged on official documents have risen 60 percent, while the cost of the annual official vehicle inspection has climbed 38 percent.

Electricity cost 254 euros more while transport has risen by 31 euros

Average spending on cars by families has fallen by almost 60 percent over the period, equivalent to 671 euros, which constitutes the biggest saving in absolute terms made by households over the period and also one of the biggest in relative terms. Spending in bars and restaurants has declined by 247 euros, or 17 percent, and on women’s clothing by 224 euros, or 32 percent.

Electricity cost 254 euros more, a rise of 52 percent, while spending on transport has risen by 31 euros, or 47 percent. Spending on attending university has climbed 23 percent, while outlays on technical training have risen by 36 percent. Part of that might be explained by the fact that students are deciding to remain in education due to a lack of job opportunities, given the parlous state of the labor market.

Smokers have also been forced to relinquish their usual brands of cigarette in favor of rolling tobacco, sales of which reached nearly 260 million euros last year.

As a result of high unemployment and wage cuts, retirees have been the section of society that has best weathered the storm, often helping out other members of the extended family.

Average spending for this group was up 0.8 percent at 25,817 euros last year, while the budget for families where the head of the household was in work fell 4 percent to 32,005 euros. In the case of families where the head of the household is unemployed, spending fell by 2.8 percent to 19,152 euros.

Further juggling acts with the family budget are also on the cards. Earlier this month, the government unveiled a planned overhaul of the regulated electricity system that is expected to push electricity up by a further 3.2 percent on average, possibly starting as early as next month.